Estate Planning for Second Marriages

Estate Planning for Second Marriages

Although second marriages are more common than ever, developing an estate plan for couples in second marriages can be complicated and challenging, especially when one or both spouses have children from prior relationships as well as an accumulation of wealth and assets that each spouse has brought to the marriage.  As an attorney who settles estates, I often find that spouses in second marriages have not done any planning to address how their assets should be allocated between their surviving spouse and their respective children.  This can lead to disagreement and litigation as the surviving spouse and children of the deceased each attempt to determine the deceased spouse’s intentions.

While there are a variety of reasons individuals and couples procrastinate in completing an estate plan, I have found that many times spouses in second marriages have simply made the incorrect assumption that if they keep the assets that they have each accumulated prior to the marriage in their separate names that they can easily and seamlessly leave assets to their respective children without involving their spouse. Unfortunately, this does not work under Wisconsin’s marital property laws.

Why does planning matter?

Under Wisconsin law, all property of spouses is presumed to be marital, regardless of whether spouses hold assets in their own names or keep their assets physically separate.  This means that spouses are only free to leave half of all marital property to their children, since their spouse is presumed to already own the other half.  This can have disastrous consequences to an intended distribution upon death, particularly when naming the spouse or children on a life insurance policy, retirement account, or other financial account as a direct beneficiary.  These designations do not take into account that both the children and the spouse are each entitled by law to a portion of the assets, regardless of the beneficiary designation.

Fortunately, spouses are free to opt out of marital property law by executing a marital property agreement.  While we often think of marital property agreements as a contract spouses enter into in case they divorce (also called prenuptial agreements), marital property agreements are widely used in estate planning to create a clear plan and obligations about the distribution of property upon death. A marital property agreement coupled with a Will or Trust that spells out the decedent’s intentions is important to make sure that both the surviving spouse and the children of the prior relationship receive those portions of the estate as intended by the decedent.

What if you are in a second marriage but do not have a marital property agreement?

If there is no marital property agreement and a spouse dies without a Will (called dying “intestate”), the assets automatically go to the living spouse. However, in second marriages where there are children from a prior relationship, the children from the prior relationship are entitled to one-half of the deceased spouse’s individual property and all of the deceased spouse’s interest in marital property.  Surviving spouses are often surprised to find that one-half of the property that they brought to the marriage is also a part of the deceased spouse’s estate, and that the children from the prior relationship may be entitled to half of the value.

This is where things can get complicated and why estate planning documents (like marital property agreements, wills and trusts) are so important in second marriages.  After death, disputes commonly arise about property division. This can lead to a lack of trust and damaged relationships among the survivors.  Furthermore, either the spouse or the children may be the only ones to have access to relevant financial information while others don’t. It is important to make sure you have Powers of Attorney for healthcare and finances in place so spouses can name who may make decisions on their behalf in order to avoid spouses and children battling for control through the courts.

While estate planning for couples in second marriages can be more complicated than for first marriages, advanced planning to make sure that your intentions are clear goes a long way to avoid litigation, financial and emotional fallout for all parties involved.

 

Three Considerations for Estate Planning During a Pandemic

Three Considerations for Estate Planning During a Pandemic

The possibility of prolonged sickness or even death from COVID-19 has caused many individuals to feel more urgency to prepare advanced directives and undertake other estate planning.  In addition, the unknown final impact of the economic crisis may raise questions about how things might need to change in current plans that transfer wealth to children, charities or other beneficiaries upon death. With these factors present, there are three options to consider for estate planning.

 

  1. Advanced Directives. While planning for a health care emergency may be easier to complete before a crisis, it is not too late to get your advanced directives in place. Advanced directives are documents that express your wishes and authorize someone else (an agent) to make medical and financial decisions for you in the event you become so ill that you are unable to make your own decisions.  Typically, this involves creating both a Health Care Power of Attorney and a Durable General (Financial) Power of Attorney.  In addition to creating these documents, it is important to speak with your proposed agents about your intentions so that if they do have to make decisions, you know that they will carry out your wishes.  If you already have these documents, review them to ensure they accurately reflect your current wishes and choice of agent(s).  What do your current documents state regarding advanced life support (e.g. ventilators), and are there any changes you would like to make regarding end of life decisions?

 

  1. Make a Will or Trust. As the reality of the pandemic sinks in, people are reaching out to execute Wills or Trusts that they have put off finalizing, or to start estate plans that perhaps should have been put in place long ago. Estate planning is very easy to delay in the best of times, particularly when it involves finalizing some difficult decisions.  Or maybe it is simply a matter of not wanting to face your own mortality.  As the current health crisis reminds us, however, we never know exactly when our estate plans will be needed.  Even if you already have your documents in place, make sure you know where the originals are located, and review them to be sure they still accurately reflect your wishes.  For example, are the named executors in your Will and trustees in your trusts, as well as any successors, still suitable and willing to serve?  Consider whether there have been any major life changes with your beneficiaries or changes in your assets since you completed your plan that would necessitate updating your documents.  Focus on what makes sense to change right now and remember, you can always update your documents in the future.  Finally, make sure that your beneficiary designations on life insurance, retirement accounts and other assets are up to date.

 

  1. Ask Your Attorney for Help. Most legal offices are open, and attorneys are being creative in order to help you complete your estate planning.  We can assist you with getting your estate planning and advanced directives completed. Even if we do not meet in person, we can schedule consultations via telephone or video conference.  Documents are then emailed or mailed to you for your review.  Following your review, it is typical to have another video or phone conference to discuss any revisions or questions, and to discuss the logistics of getting your documents signed.  Wills, trusts and advanced directives all have very specific execution requirements in order to be legal.  Therefore, it is important to work with us to determine which documents in your plan can be signed remotely and which require in person witnessing and notarization.

 

We understand that completing your estate planning during a health crisis can be emotionally taxing; however, now may be the best time to take advantage of addressing your planning while these issues are on your mind.  Our estate planning attorneys are happy to guide you through the process.

 

What Is Divestment Under Medicaid Law?

What Is Divestment Under Medicaid Law?

Divestment is when you or your spouse give away assets belonging to either or both of you and sell assets for less than fair market value. Avoiding or refusing to accept income or assets you are entitled to, such as a pension income or an inheritance would also be divestment.

While individuals and couples often want to get rid of assets so that they can qualify for Medicaid in the event they need long term care, divestment actually results in ineligibility if done within five years of applying for Medicaid. This is referred to as the five-year look-back rule.

If you have divested assets within five years of applying for Medicaid, you will be subject to a divestment penalty period. The penalty period is the amount of time that Medicaid will not cover your long-term care costs in an assisted living facility or nursing home. The length of the penalty period is determined by dividing the value of the assets divested by the average nursing home rate ($287.29 per day as of the writing of this article). The nursing home rate is updated annually. The divestment penalty period begins when you are first eligible to receive Medicaid benefits.

It is important not to confuse the annual tax-free gift exclusion with an exempt transaction for Medicaid purposes. The current annual gift tax exemption is $15,000, meaning an individual may make gifts in the amount of $15,000 to different individuals without having to file a federal gift tax return. Any annual exclusion gifts, however, would still be divestments for Medicaid purposes, and subject to the five-year look back.

Another common misconception regarding divestment is that there is some type of “claw-back” mechanism whereby the individuals who received the divested assets are made to give them back or turn them over to the nursing home. This is simply a myth. Divestment results in ineligibility for Medicaid if done within five years of applying, but no one is forced to give assets back. Ineligibility can have catastrophic results because without having the assets that have been divested, you or your spouse may have no way to pay for care during the penalty period. Proper planning is very important. The rules regarding divestment are complex and you should consult with an attorney familiar with the rules regarding Medicaid and divestment before any disqualifying divestments are made.

 

What Is Probate?

What Is Probate?

Probate is an often misunderstood but frequently heard term in relation to the death of a loved one. Perhaps in completing your estate planning you have been advised to “avoid probate.” But what is probate and why is to be avoided?

Probate is the name of the legal process that takes place after someone dies for the purpose of the following:

  • Proving that a deceased person’s Last Will & Testament is valid, if there is one.
  • Determining and giving notice of the proceedings to the deceased person’s heirs, any beneficiaries named in the Will, and the deceased person’s creditors.
  • Identifying, inventorying and valuing what the deceased person owned when they died.
  • Determining who will receive the deceased person’s property (heirs, beneficiaries, creditors, etc.).
  • Distributing the remaining assets as the Will directs (or to the heirs identified by state statutes if no Will exists).

The process itself involves filing documents in the local probate court to have the Will admitted and to request that a Personal Representative (sometimes called, Executor) be appointed. The Personal Representative is thereafter required to continue to provide information to the Court and the other interested parties, until the assets and expenses are fully accounted for, and then will ultimately need to obtain approval to distribute the assets to those who are entitled.

Clients often want to avoid this process because it can take a great deal of time and requires legal paperwork and potential court appearances. It is often misunderstood that having a Will is necessary to avoid probate. There are numerous ways to avoid probate, but preparing a Will is not one of them. Whether or not probate is needed will be driven by the value and type of assets owned by the deceased person. An estate planning attorney can discuss the ways to avoid probate and what might be most suitable in your situation.

 

How to Address Family Conflicts Concerning Caregiving for Aging Parents

How to Address Family Conflicts Concerning Caregiving for Aging Parents

Having adult children provide care and support to an aging or ill parent can be very helpful, but in some cases, can be a cause of stress and family conflict.  Caregiving can bring families closer as they provide mutual support, but in some situations, the stress and pressure of caregiving leads to strained relationships.  This strain may be caused by old patterns of family dynamics involving unresolved past wounds or childhood rivalry or, in some cases, because one or more children are unable to accept the reality of the parent’s illness and eventual death.

Often, conflict is caused by an unequal division of caregiving duties. A parent will typically name one child as agent to make health care and financial decisions in the event of incapacity by completing health care and financial powers of attorney.  The parent will usually choose the person they believe to be the most responsible, the most available or the closest in proximity.  Regardless of the reason, choosing one sibling over another sometimes leads to the caregiving child feeling overburdened with shouldering all of the caregiving duties while the other siblings feel resentful, left out and sometimes suspicious of the caregiving child’s actions.  These feelings often lead to individuals seeking the advice of an elder law attorney regarding the designation of one of the children as agent in a power of attorney. The advice that is most typically sought includes: the validity of the Power of Attorney, agent decision making, financial feuds and the mistreatment of the parent(s).

Questioning the Validity of the Power of Attorney.

Since a person must be competent in order to appoint an agent under a power of attorney, accusations are often made that the parent did not understand the documents or was unduly influenced to sign a power of attorney.  If the parent truly was not competent, Adult Protective Services can step in or the power of attorney can be invalidated.   However, if the accusations are more related to the dissention between family members, the result can often entail an investigation into the agent’s actions that ultimately only results in more family tension and unnecessary legal costs on both sides.

Agent Decision Making.

If siblings do not trust the child who is named as agent, it can cause ongoing questioning of every detail related to the agent’s decisions.  Sometimes, siblings challenge legitimate decisions made by the agent child because they are not as informed or do not understand, which results in continuing resentment and exhaustion on the part of the caregiver.  If an agent is actually making questionable decisions, Wis. Stat. s. 244.16 provides for the actions of a financial agent to be reviewed by the court and Wis. Stat. s. 155.60(4) provides for the actions of the health care agent to be reviewed by the court.

Financial Feuds. 

Finances are a huge source of dissention between family members.  Using a parent’s funds to provide for long-term care will likely reduce potential inheritance, leading to discord between siblings who are not supportive of the type of care being provided.  Also, a caregiving child will sometimes request compensation for caregiving services.  Although such payments are allowed by law, the caregiver’s siblings might object to such payments.   Potential heirs can bring a legal action to review the financial conduct of an agent who has acted illegally or unethically, or petition the court for guardianship to allow for court oversight of the actions of the person in charge.

Abuse, Neglect and Financial Exploitation.

In some cases, the caregiver may be accused of elder abuse, neglect or exploiting the finances of the parent.  These concerns can be reported to Adult Protective Services.  If necessary, a concerned family member can obtain an injunction under Wis. Stat. s. 813.123, to restrain the caregiver from further abuse or financial exploitation.

While an elder law attorney can help with legal remedies for agents who are abusive or exploitative, in most cases the emotional issues are better addressed by opening the lines of communication on both sides.  The following are potential actions that the caregiver and siblings can respectively take to open the lines of communication.

For the caregiver

  • Communicate with family members. Even if you do not all get along, let everyone know what is happening with their parent, both personally and financially.
  • Initiate family meetings, even if everyone will not participate. Discuss the current health and financial status and the next steps.
  • Make a list and prioritize the types of services and support that the parent needs now and may need in the future.
  • Identify what support can be provided by the caregiver, other family members or outside services.
  • Ask for help, and delegate appropriate responsibility to willing family members.
  • Remember that as caregiver, you may end up carrying a heavier load than your siblings and some may not help at all. Having more responsibility may not feel “fair,” but the more important issue is to make sure your parent is receiving appropriate care.

For the siblings of the caregiver

  • Accept that the caregiver child has likely been chosen by the parent because of the trust your parent had in him or her, and not because your parent did not want you to act.
  • Attend family meetings and ask questions about status, next steps and services needed.
  • Be clear about what help, if any, you are willing and able to provide so that the caregiver’s expectations of you are appropriate. Caregiving can be exhausting and emotionally draining.  If you cannot take on specific responsibilities, offer to be a sounding board or a listening ear when the caregiver needs to vent.
  • Consider using outside sources to work through family issues such as mediators, counselors or social workers. A third party can be valuable in providing perspective without taking sides.

Since everyone’s situation is different, there is no solution that will work for every family in terms of dealing with caregiving and family conflict.  Open and honest communication, focused on the needs of the parent, however, can eliminate some of the tension and hard feelings, resulting in better help for the parent and better help for each other.

 

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